It has become a trend among banks to come up with revised earnings owing to legal settlements and/or additional reserve taking. The latest to join this league is Credit Suisse Group AG CS. Increasing its mortgage-related litigation provisions, the bank restated its fourth-quarter 2014 earnings, giving effect to additional provisions worth CHF 277 million. This announcement led to a 1.44% fall in the bank’s ADRs on the NYSE.
Restated Results
Credit Suisse lowered its net income for fourth-quarter 2014 to CHF 691 million ($716.4 million) from CHF 921 million ($954.8 million) compared with loss of CHF 476 million ($526.8 million) in the year-ago quarter.
For full-year 2014, adjusting for the additional provisions, reported core pre-tax income was CHF 3.23 billion ($3.53 billion) compared with CHF 3.5 billion ($3.8 billion) in 2013. Further, reported net income attributable to shareholders was reduced to CHF 1.88 billion ($2.06 billion) compared with CHF 2.33 billion ($2.51 billion) in 2013.
However, Credit Suisse’s strategic core pre-tax income for the fourth-quarter 2014 and full-year 2014 remained unchanged at CHF 1.45 billion ($1.5 billion) and CHF 6.79 billion ($7.43 billion), respectively.
Our Viewpoint
Trouble has been brewing for the banks for quite sometime now. A slew of lawsuits have continued for major banks since the financial meltdown. Numerous lawsuits alleging banks of such wrongdoings are expected to tarnish their reputation and financials over time. Therefore, provisions for litigations will help banks lower the adverse impact of legal settlements on its financials.
Credit Suisse’s focus on capital generation and restructuring initiatives are encouraging. Also, the company is making efforts to gradually resolve its legal issues. However, given the challenging macroeconomic environment, we expect Credit Suisse’s earnings to remain under pressure going forward.
Moves by Other Banks
Barclays PLC’s BCS adjusted net income attributable to shareholders came in at £2.8 billion ($5.0 billion) for 2014, up 27% year over year. This was mainly driven by significant curtailment in non-core assets and a rise in lending income. Notably, Barclays created a provision of £1,250 million ($2,061 million) related to the ongoing investigation of the alleged manipulation of foreign exchange rates. Apart from this, an additional provision of £1,110 million ($1,830 million) was made to cover the payout over payment protection insurance (“PPI”) redress.
State Street Corporation STT restated its fourth-quarter 2014 earnings, giving effect to $65 million additional legal accruals related to indirect foreign exchange matters. The company announced the legal accrual of $115 million, which was previously stated at $50 million. The restatement comes as the company is in talks with several governmental agencies and civil litigants relating to its indirect foreign exchange activities and intends to settle some of the possible claims. The company’s total legal accrual now stands at $185 million pertaining to related issues.
The Bank of New York Mellon Corporation BK has announced recording an additional legal expense of $598 million, leading to restatement of its fourth-quarter and 2014 results. BNY Mellon’s net income applicable to common shareholders in the fourth quarter now stands at $209 million or 18 cents per share. BNY Mellon’s 2014 results were revised as well. Presently, net income applicable to common shareholders is $2.5 billion or $2.15 per share. This figure is calculated by revising down the previously recorded net income of $3.1 billion or $2.67 per share.
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